For the majority of working people, hourly wages and yearly
incomes
share a close link; hourly wages are the principal source of their
income. Unfortunately, at both the national and state levels, wage
growth for most workers has been disappointing for more than 30 years
(see chart below). Focusing on more recent trends, during the Great
Recession and the subsequent recovery (2008-2014), the story is even
worse: wages actually have declined slightly for all wage earning
groups. While Massachusetts workers have fared better than US workers
as a whole, poor wage growth has been a defining characteristic of our
economy.

Not surprisingly, the wage stagnation of the last three
decades has
translated into similarly poor income growth for most Massachusetts
households (see chart, below). Low income households have suffered
actual income declines since the late 1970s. Insufficient incomes
create real and substantial problems for many workers and their
families, negatively impacting their quality of life, limiting their
own economic opportunities and the opportunities they can provide for
their children.

Wage-driven income stagnation also is a core cause of the
growth of
extreme income inequality.1
We see both nationally and here in
Massachusetts, a pattern where the top 1 percent of households now
capture the overwhelming majority of all income growth.2 Such
extreme income inequality, in turn, generates substantial problems both
for a healthy economy and for a well-functioning democracy.3
As a key driver of all these problems (working people struggling to
make ends meet, extreme income inequality, a less vital economy and
democracy), wage stagnation stands as one of, if not the central
economic challenge of our day.

The trend of recent decades - where the vast majority of the benefits
of economic growth have gone to the highest income households - has not
been a permanent feature of the American economy. In fact, in the three
decades following WWII, strong overall income growth was matched with
– and in part, likely was the product of
– far more
equitable income growth.4
During this
post-war period, high, middle and lower income households all enjoyed
significant annual income gains (see chart below).

During this post-WWII period, notably, median wages also grew
in
lockstep with the overall growth in productivity (see chart, below). As
workers delivered more and better products during each hour of their
work day, they shared in the profits generated through their work. In
the 1970s, however, this pattern began to change: productivity
continued its steady rise, but wages for average workers stagnated (see
chart, below).

Reconnecting wage growth to gains in productivity –
in other
words, making sure that when productivity increases, the new value
being created leads to higher wages as well as profits – is a
core challenge for today’s policy makers, at both the federal
and state levels. Massachusetts already has taken modest but
important steps toward achieving this goal. By adopting a state minimum
wage of $11/hour by 2017 (the highest statewide minimum in the nation,
if other states do not enact higher rates by then) and requiring most
employers to provide earned paid sick time, the Commonwealth is
building a better wage and income floor under low wage workers.

Massachusetts also has the highest median wage in the nation (see
chart, below) - a fact directly connected to the high levels of
education of many Massachusetts workers. (To read more about the
connection between education and wages, see the Education and the
Economy section of this report.)

Nevertheless, poor wage growth and low incomes remain a deeply
problematic reality for too many Massachusetts workers and their
families. By reconnecting workers’ wages to the ever-growing
productive capacity of our economy, however, we can move ourselves
toward a future of broadly shared prosperity. Indeed, if economic
growth over the past three decades had translated into proportionate
income growth for low, middle, and high income households –
rather than disproportionally benefitting the highest income households
– then low and middle income families today would have real
incomes $10,000 to $15,000 a year higher, on average, than is currently
the case (see chart, below). For many low and moderate income
families, this amount of additional annual income could transform their
day-to-day lives and their possibilities for the future.

It will not be good for Massachusetts working families if the
next
thirty years look like the last thirty. There are, however, some
hopeful signs. An improving national labor market, with falling
unemployment and more job opportunities – which
we’ve seen indications of here in Massachusetts over the last
few quarters (see the Jobs
& Employment section of this report)
- can help eventually to push up wages and incomes. Indeed, tighter
nationwide labor markets are critical to creating the conditions under
which workers can demand and receive a more reasonable slice of the
economic pie. But Massachusetts cannot simply sit back and wait for
workers’ economic conditions to improve on their own. Policy
choices have played a major role in producing the wage and income
stagnation that has characterized the last three decades. Federal and
state policy choices will need to be a part of the solution.